When discussing crypto trading with experienced traders, perpetual futures, or 'perps,' are often the first topic of conversation. These derivatives contracts allow traders to control large positions with minimal capital. Unlike standard futures, perps do not have an expiration date, making them a popular choice among traders.
For altcoin traders, perps are often the only viable option for derivatives trading, as dated futures are typically illiquid and spot markets are less desirable for short-term trading. Traders appreciate perps for their low fees, high liquidity, and efficient margin usage, which enables them to manage risk effectively.
However, funding rates, which are recurring costs for maintaining open positions, are a concern for traders. These rates can add up over time and impact trading profitability. Traders argue that perps are not a matter of choice, but rather a necessity, due to the lack of liquidity in dated futures. The 'perpification' of various assets is expected to gain momentum in the coming years, with tokenized oil trading being a prime example.
Despite the benefits, traders are cautious about the funding rate, which can be volatile and unpredictable. The funding rate is typically charged every eight hours and can be a significant burden for traders who hold positions for extended periods.
Experienced traders, such as Lucas Krenn and Kenneth Ong, emphasize the importance of understanding the funding rate and its potential impact on trading strategies. They also highlight the asymmetry in perp risk, where being long is often considered the safer side due to the ease of arbitraging away positive funding. In contrast, negative funding rates can be more challenging to navigate, particularly when the circulating supply of a token is small and concentrated.
As the crypto market continues to evolve, perpetual futures are likely to remain a popular choice among traders, despite the unique challenges they present. By understanding the benefits and drawbacks of perps, traders can make more informed decisions and develop effective strategies for navigating this complex market.